Publications: Notes at the Margin

Fraud on the Market (September 21, 2020)


Oil prices returned to their end-of-August highs last week. Many credited Saudi oil minister Abdulaziz for this achievement after he chastised other oil producers for exceeding their quotas. In reality, the prince is lashing those producers with the equivalent of a wet noodle.


The real responsibility for the price increase lies with the US Energy Information Administration. The EIA has committed FRAUD on the oil market for the last six months by publishing erroneous estimates of US crude production that have misled the public. The lackeys (yes, lackeys) in the press at Argus, Bloomberg, Financial Times, OPIS, Reuters, and S&P Global Platts have aided and abetted the fraud by uncritically citing the EIA production figures.


Those trading in the physical market know better. For example, they understood on Wednesday of last week that US production over those six months fell almost ten percent short of the EIA’s published estimates. They knew that the US contribution to the global cutback was increasing. They comprehended that the modest overproduction by some OPEC+ members had a far smaller impact on prices than the unreported impact of US producers. With this knowledge in hand, they are profiting from the EIA's FRAUD.


Now, however, the growing distillate inventories may soon force new market adjustments. Large-scale refinery run reductions and crude slate changes might be required to slow the buildup. Extreme "price inversions" could be needed, too, in which gasoline sells at large premiums to diesel. Retail gasoline prices in the US average $2.18 per gallon today. Imagine the situation if these prices rise sharply by November 1, just before the US election, due to refinery output cuts.


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